Britannia Radio

The Daily Reckoning U.S. Edition

Home . Archives . Unsubscribe

The Daily Reckoning | Friday, April 8, 2011 Why non-Chinese rare earths producers need to ramp up production - NOW... Revisiting an underappreciated report from 2008...and why it's still important... Plus, Bill Bonner on the declining impact of French culture on the rest of the world, and more... ------------------------------------------------------- Retire Off This One Penny Stock? All of your retirement woes could be lifted thanks to this one penny stock's massive resource discovery... You could quickly turn $25,000 into a whopping $1,212,750...no matter how the market moves! But you must hurry before Wall Street catches wind of it... Expert geologist Byron King reveals the full details in his new presentation - here. 2008 Revisited How One Report on Rare Earths Proved Remarkably Prescient Joel Bowman Reminiscing from Buenos Aires, Argentina... The year was 2008... Economically, the world was still wallowing in the depths of a frighteningly real recession. For many, the frighteningly false recovery that would follow was as yet unimaginable. In many ways, for many of us, it still is. Over in the political sphere, a young man promising "change" was beginning to drum up some popular support in the presidential elections. For many, the possibility of change in Washington seemed unimaginable. In many ways, for many of us, it still is. Perhaps more importantly, 2008 was also the year when the stunning Marion Cotillard delivered her Oscar-winning portrayal of legendary chanteuse, Edith Piaf, in the biopic La Vie en Rose, a feat which would make her the first French performer since 1960 to claim that particular accolade. Curiously, Marion's was the only one of these three performances to be recognized by the Academy. Not even the Dow's subsequent 4,400-point rally, nor the President's earnest lip service to his election promises, earned a glance from the judges. Harsh! As far as acting goes, Obama and the Dow have turned in some of the best performances of all time. Let's see...what else? Oh yes, back in 2008 - three years ago this very month, in fact - a long forgotten, fringy little contrarian newsletter published a column titled "Meet the Lanthanides." It too met with no fanfare from the Academy. Neither was it elected to an Oval Office and decorated with a Nobel Peace Prize. (And why would it? It had never brokered a single peace deal in its entire existence? Of course, it didn't start any wars...so there is that...) Nevertheless, this under-the-radar column did portend an epic rally around a little-known, somewhat dusty section of the periodic table. "So what are these 'rare earths' and why do the Chinese care so much about them?" wrote the intrepid Byron King in his "way-early" lanthanide column. "Rare earths are some of the most valuable, critical metals on the planet. Demand for these metals is soaring, and supply is not. "In formal scientific nomenclature," explained Byron, "the 15 rare earth elements of the Periodic Table are called the lanthanides. None of these elements are famous like gold or sliver. None gets shipped in giant ore freighters, like iron, aluminum or copper. You sure don't learn much about these 15 elements in high-school chemistry class, unless maybe it's the school that feeds lots of kids into MIT or Caltech. "In fact, the only people who really study these elements are master's- and Ph.D.-level chemists and solid-state physicists. Oh, and national leaders in places like China. But without these elements, much of the modern economy would just plain shut down. "These elements are critical to the modern economy," Byron continued, "and that is not hyperbole. We are addicted to rare earths as much as we are addicted to oil, except most people don't know about the rare earth addiction. "The rare earths play a critical role in petrochemicals, environmental protection, 'clean' technology, electronics, automotive applications, optics, telecommunications, computing and defense. Really, without these 15 elements, you could say goodbye to much of modernity. There would be no more television screens and computer hard drives, fiber- optic cables, digital cameras and most medical imaging devices." Concluded Byron, in his column published long before the mainstream financial gurus knew their yttriums from their scandiums: "I've already ferreted out one very compelling idea for the subscribers of my Energy & Scarcity Investor service. But I'm still on the hunt for others...and you should be too." Byron went on to deliver a handful of stellar plays to his Energy & Scarcity Investor readers. And, needless to say, with rare earth shipments out of China having increased by an average of around $10,000 per tonne per month over the past year, Byron's readers are sitting rather pretty right now. Back to revisit the rare earth discussion, here is Mr. King with part two of his most recent investigation. (If you missed Part I, yesterday, check it out here.) From Hulbert's No 1-Ranked Advisory Letter Over 5 Years, Our Most Shocking Forecast Yet... GOLD $2,000 "I'm so sure gold will soar higher I'll even make you a guarantee...plus, I'll give you five entirely new ways to play the trend..." "Including one hidden way to snap up gold... for less than one penny per ounce..." How can that be possible? Give me the next four minutes and I'll show you how... The Daily Reckoning Presents Handicapping the Rare Earths Stampede Byron King Over the past couple of months, we've learned plenty about the future of Chinese demand for rare earths. Bottom line is that the Chinese will likely become net-importers of rare earths within three years - certainly within five years. What does this mean for rare earths? Chinese export volumes will continue to decline. Not only will there be less Chinese rare earths product for sale, but the Chinese will compete for at least some of the very same rare earths product as everyone else. Big problem, right? Let me state it another way. There's not enough rare earths to go around! Not based on the current production numbers, and the future supply-demand trends. Hence the price will EXPLODE for some rare earths elements, particularly the "heavy" rare earth elements (HREE). Hold that thought. Meanwhile, the US political class in Washington, DC is barely beyond waking up to the issue. Last fall, I heard a sitting Member of Congress - who serves on the Science & Technology Committee - say that he became aware of the rare earths issue when he "read about it in theNew York Times." Oh really? How reassuring. (In my investment letter, Energy & Scarcity Investor, I've been analyzing the rare earths since March 2008, and have recommended numerous winning investment ideas based on those analyses). Of course, there are people within the US Department of Energy, the Geological Survey and other agencies who've been following the problem for a while. But the point is that US rare earths policy is amorphous. It's still crystallizing. As a student of both Clausewitz and the Periodic Table, my opinion is that there's more of a US plan for bombing Libya than there is for dealing with the looming shortages and price spikes in the rare earths space. Looking ahead, and to paraphrase The Mogambo Guru, "We're doomed." Over the next 24 months or so, the world will experience a bad case of rare earths sticker shock. We'll see space shuttle trajectories for rare earths prices, especially the "heavy" (HREE) product. There are more and more news articles about rare earths. But you'll probably see even more. And everyone's going to be an expert. Your barber, the cab driver, the shoe-shine guy will tell you how to make money in rare earths. This coming rare earths phenomenon will attract more and more hot money into the investment space. Stand by for lots of stock market froth, and maybe a humongous bubble. But that's not happening just yet... If the Chinese are going to import rare earths product within, say 3 or 4 years, then the timeline is that non-Chinese producers need to do something NOW! That is, non-Chinese players need to hold an assayed ore body, and plan mine operations - now. They need to be building facilities - now. They need to get the hydro-metallurgy nailed down - now. They also need to work out agreements with eventual users - like, not now but yesterday! There's no time to lose. Thing is, the West is way behind the curve on all of this. Three years out, from now, is the blink of an eye in development terms. What's that tune? "Tardy to the Party?" Over the past three years or so, the Chinese have tightened export quotas. The actual, physical volumes are plummeting. And, as I mentioned above, the Chinese are going to buy rare earths from non- Chinese sources. Yikes. This means there's a mad rush - a stampede! - by Western firms to come up with ways to get rare earths into production, the sooner the better. Let's handicap this race. Some of the likely winners in this stampede are stocks I have recommended to the subscribers of Energy & Scarcity Investor. As such, I cannot divulge their names here in The Daily Reckoning. But I can discuss a couple of former recommendations, like Molycorp. Early this week, Molycorp made a strategic move. Molycorp paid not quite $90 million for a 90% interest in a former Soviet rare earths plant in Estonia. This is a "leapfrog" kind of deal. It gives Molycorp an up and running facility - while Molycorp rebuilds its old facilities at Mountain Pass - in mining-friendly California. (I'm just kidding about that "mining-friendly" thing.) This Estonian plant is the Silmet facility, which is optimized for light rare earths (LREE), which is coincidentally much of what Molycorp has at Mountain Pass. Silmet is also an important producer of the exotic elements niobium and tantalum - from Russian ore. The Silmet plant is modest in scale - about 3,000 tons per year - but at least it's up and running. There's a long-term workforce. There's also something critical at Silmet, which is a strong history of making the hydro-metallurgy work. Sometimes, though, when it gets cold in the winter, the chemical equilibrium at Silmet goes out of whack. Then it takes weeks to get things working again. Whoops. So Silmet advances Molycorp's game, in many respects. Still, I should note, for several years Molycorp has promoted itself as an "American" rare earths play. Molycorp management has racked up double-diamond elite status, flying to Washington, DC to plant Old Glory on top of Capitol Hill and trumpet the Mountain Pass redevelopment. Yet now Molycorp is buying a former Soviet LREE plant, in Estonia that uses Russian ore? Go figure. Does this mean that Molycorp is hedging its bets? Things might not go as well as planned with the California schedule? It's possible. Again, time will tell. Whatever happens in California - and ANYTHING can happen in California! - it's accurate to say that the Silmet news stunned the markets. Molycorp paid $9 million cash for the Silmet plant, plus 1,593,419 MCP shares valued at $50.21 each. Over the past week, Molycorp shares have soared from the mid-$50s to near $69 each, so the sellers are making out very well. The rare earths sector is heating up very quickly. Watch this space! Regards, Byron King, for The Daily Reckoning Joel's Note: As we mentioned in yesterday's reckoning, when Byron first alerted his investment circle to the vast potential of the whole rare earth story, most folks in the mainstream financial press still didn't know their yttriums from their scandiums...to say nothing of their dysprosiums, ytterbiums and praseodymiums. Can you believe it? No wonder the mainstream were so late on the scene, scrambling to take positions in companies that had doubled or tripled by the time the story broke...companies that Byron's readers were, by then, busy unloading for handsome returns. Right now, Byron is monitoring the sector with his characteristic attention to detail, awaiting the next profit opportunity. If you want to be in early, you'll want Byron, Agora Financial's own, intrepid geologist, in your employ. Check out his latest presentation here for more info on his Energy & Scarcity Investor service. Bill Bonner On the Stagnant State of French Society Bill Bonner Reckoning from Paris, France... Send in the philosophers! How the US went to war in Libya...and more! We have come to France "a l'improviste" on a sad mission. We are on our way to a funeral. A 20-year-old neighbor was undergoing treatment for leukemia, and making progress following a bone-marrow transplant. And then, in his vulnerable state, an infection carried him away. Here in France, things are much as we left them... But that is the problem with France. Nothing much ever changes. At least, not for the better. It is as if it hit its peak under the Third Republic and has been in decline ever since. "France is almost a zombie country," we told a friend in the US. "Walking dead. "Name a single French filmmaker of international status," we challenged her. "Or a composer? Or a musical group of any sort? Or a writer? "Try to describe the latest 'french style' in furniture...or architecture...or anything else... "French cuisine was developed long ago. When was the baguette invented? Or the croissant? Or soup a l'oignon? A long time ago. I don't know either, but it was probably before 1914. And French architecture? Paris was designed and built mostly in the second half of the 19th century. Most of what you see dates from that period. And the last notable developments in architecture were in the '20s - with art deco. In interior furnishings, there has been even less innovation. People decorate with Louis 15th or Louis 16th furniture...or California modern. Everything nowadays is imitation or derivative. "And theatre? Entertainment? Paris had popular dance halls...Le Moulin Rouge...and the Follies Bergeres...a century ago. There were the bedroom farces of the '20s...but what after that? I don't know... Waiting for Godot - that was by an Irishman. Then, there are those '60s plays like The Flies and Deadend. But seem almost silly today. There may be good theatre in France, but it must not travel very well. It's not known outside of the country "I already mentioned film...but what about philosophy? That's where the decline is perhaps most remarkable. In philosophy, the French started from a low point and worked their way down. "At least French philosophy was popular in the '60s. People elsewhere tried to figure out what it was all about. Today, who cares? "Now, few people can name anything at which the French are even close to leading the world - except public debt, where they're roughly tied with the US." But what's this? France's leading TV philosopher - BHL, Bernard-Henri Levy - is back in the news. What, exactly, is his philosophy? Beats us. We actually met BHL 30 years ago. We tried to decipher what he was talking about then. We never did make sense of it. In the three decades since, BHL went on to be a star. He's on TV. He writes book. He's married to a famous actress. And he still has his hair. We can forgive him many things; but not that. If we can't have hair, no man should be allowed to have it. But he's one of the beautiful people - rich, talented, handsome and smart. More importantly, he's an activist! Yes, dear reader, that is the depth to which French philosophy has fallen. Activism! Meddling! World improving! But BHL didn't get there on his own. Generations of French philosophers had to dig to get down that low. We blame Descartes for putting in the first spade. "I think, therefore I am," may have solved an important problem for philosophers, but it led the whole trade in the wrong direction. Suppose he had thought he was an onion? Could you have made soup out of him? No, the whole enterprise of French philosophy was doomed from the get-go. And it didn't get better. In modern times, Jean Paul Sartre gave out the word that a person had to meddle in order to exist. It was the difference between "being and nothingness." You had to be "engaged" in politics, he said. Naturally, he married himself to the marxists...and never recovered. And now we have BHL on the front lines. According to the news reports, he hitched a ride on a vegetable truck to sneak across the Libyan border. Then, he arranged for a clandestine meeting with the rebels. His mission? Well, we don't know what his mission was. But if you believe the article in Le Point, he was serving the French government as a kind of minister sans papiers. Sarkozy invited him to meet the rebels. BHL met with them and concluded that they were freedom fighters - in need of the West's support. Soon, the French air force was dropping bombs on Libya...bringing the Americans into the war with them. But why Libya? Why not go to war in some other country with a leader BHL doesn't like. BHL answers: It was an accident of history. I happened to be in Egypt when Gaddafi sent his planes to shoot at the pacifist demonstrations in Tripoli. It seemed to me such an enormous, unprecedented thing, and I felt the Egyptian democrats around me were so horrified by it that I decided on instinct to go to Libya straight away. And more thoughts... A Paris street scene. Two gendarmes are standing outside the café. What they are doing isn't clear. But along came a small Italian car, with a small Italian driver in it. The car pulled up directly in front of the policemen. The car was practically in the middle of the busy street. Nevertheless, the driver got out. He nodded to the policemen...and came into to the café to have a drink. One policeman looked at the other. He smiled, gave a "gaullic shrug"... When the driver returned to his car, the policeman asked what he was doing parking in the middle of the street. "I was just getting a cup of coffee..." "Oh...okay..." *** More Americans will probably become "engaged"...politically. The Ben Bernanke Fed is "murdering" the middle classes, says our old friend, Marc Faber. Yes, there are two economies in the US now. There are the rich - those who make money from the Fed's reckless money-printing. And there are the rest of the population, who suffer the higher prices it causes. Here, Vanity Fair takes up the issue: It's no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation's income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. One response might be to celebrate the ingenuity and drive that brought good fortune to these people, and to contend that a rising tide lifts all boats. That response would be misguided. While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous - 12 percent in the last quarter-century alone. All the growth in recent decades - and more - has gone to those at the top. In terms of income equality, America lags behind any country in the old, ossified Europe that President George W. Bush used to deride. Among our closest counterparts are Russia with its oligarchs and Iran. While many of the old centers of inequality in Latin America, such as Brazil, have been striving in recent years, rather successfully, to improve the plight of the poor and reduce gaps in income, America has allowed inequality to grow. Economists long ago tried to justify the vast inequalities that seemed so troubling in the mid-19th century - inequalities that are but a pale shadow of what we are seeing in America today. The justification they came up with was called "marginal-productivity theory." In a nutshell, this theory associated higher incomes with higher productivity and a greater contribution to society. It is a theory that has always been cherished by the rich. Evidence for its validity, however, remains thin. The corporate executives who helped bring on the recession of the past three years - whose contribution to our society, and to their own companies, has been massively negative - went on to receive large bonuses. In some cases, companies were so embarrassed about calling such rewards "performance bonuses" that they felt compelled to change the name to "retention bonuses" (even if the only thing being retained was bad performance). Those who have contributed great positive innovations to our society, from the pioneers of genetic understanding to the pioneers of the Information Age, have received a pittance compared with those responsible for the financial innovations that brought our global economy to the brink of ruin. Some people look at income inequality and shrug their shoulders. So what if this person gains and that person loses? What matters, they argue, is not how the pie is divided but the size of the pie. That argument is fundamentally wrong. An economy in which most citizens are doing worse year after year - an economy like America's - is not likely to do well over the long haul. Vanity Fair goes on to misinterpret the situation. But what do you expect? That's why a revolution is coming... Regards, Bill Bonner for The Daily Reckoning